HARARE – The Reserve Bank of Zimbabwe (RBZ) says deposit insurance plays a critical role as a component of the financial safety net in an economy.
Deposit insurance is protection provided by a government agency to depositors of a bank or deposit-taking institution.
It assures the depositors of compensation in case a bank collapses.
RBZ deputy governor Jesimen Chipika told delegates attending the International Association of Deposit Protection Insurers Africa Regional Committee meeting in Victoria Falls that deposit insurance instils confidence in the banking sector.
“In particular, it provides depositors with clarity, reassurance and confidence, and facilitates the orderly payment of claims to depositors, especially during crisis times,” she said.
This comes as banking crises across the world are putting pressure on government officials to rescue at least some banks resulting in implicit insurance being applicable in every country.
Deposit insurance started in the US after the Great Depression, the longest lasting economic downturn in the US.
The on-switch went on after the infamous stock market crash of October 1929.
According to the Association of International Deposit Insurers, an organisation of 71 insurance organisations based in Basel, Switzerland, in 2014, there were 113 countries with deposit insurance, up from 12 in 1974.
Despite a rise in number of countries adopting deposit insurance concept, there is school of thought that believes that deposit insurance encourages laxity, makes depositors less careful, and likely to invest in obviously risky institutions.
Second, in some instances and jurisdictions, the procedures of compensation can take such a long time that depositors suffer in the process.
Chipika noted that over the past few years digital technology has transformed the types and distribution mechanisms of banking and financial services across the globe.
The provision of banking services, she said, has been shaken by the provision of banking services via smartphones and tablets, and the continuing expansion of online banking.
“In fact, the emergence of disruptive financial technologies, commonly referred to as fintech, which are broadening access to an array of financial services, has a significant impact on the financial stability mandate of deposit insurers.
“Banking institutions have had to review their business models with the resultant emergence of new delivery channels and synergistic partnerships between banking institutions and fintechs,” she said.
While this development has positively impacted on the drive towards financial inclusion, supervisory and regulatory authorities recognise that this drive brings with it new risks and the need for ongoing review of financial safety net frameworks in order to safeguard financial stability.